We are a couple.We both have roth IRAs and are planning to retire 30 years from now.Anybody know about some good “American funds” that we can invest into our Roth IRAs?Thanks

6 comments so far...

curtisports2 Said on March 29th, 2010 at 5:44 pm:

I don’t know what you mean by ‘American Funds’. Do you mean funds that invest only in American companies? I’m sure there are some, but you do not want to risk performance for ideological principles. Globalization is where it’s at now and many American companies do a large part of their business overseas. You want some exposure to international companies in your portfolio.

If you mean funds sold by American Funds, the mutual fund corporation, I do not recommend investing with them. For two reasons, neither to suggest that American Funds is a bad company – they are not, thousands of investors have American Funds. Instead, it has to do with one’s investment philosophy.

My investment philosophy is to try to get the most return I can.

American Funds is a family of funds that cover a wide range of market sectors. They, like may fund families, have large capitalization (cap) growth funds, mid cap, small cap, value funds, balanced funds, bond funds, international funds, and niche sector funds such as technology, health, financial, and others. But think about this: How likely is it for ONE family of funds to have the BEST funds in every sector? They may have one or two excellent funds, but the rest may be nediocre or even bad. You want the BEST possible funds in every segment of your portfolio, so you NEVER invest all of your money with one fund family.

Secondly, American Funds are load funds. An up front sales commission is charged each time you invest. It’s roughly about 5%. Let’s say you start out with $1000 and add $100 every month. Only $950 of your startup and $95 each month gets put to work, the rest goes in someone else’s pocket. Over 25 years, the lost earning potential on those dollars will add up to thousands that you would have add with no load funds. In a no load fund, all of the money you invest goes to work. With two funds, load and no load, that have identical rates of return over the same time period, and with identical expense ratios (more about that later), the no load fund will have more than doubled the load fund after 20 years. Why? 5% a year of your money that you got to keep and grow, times 20, plus the compounding of that money.

About expense ratios. All funds have them, but they can vary substantially. These ratios are the management fees charged by the company. They definitely effect total return, especially over a long time period, so you want the lowest expenses possible -just not at the expense of a better fund. A great-performing fund that charges 1% in fees is better than a lousy fund that charges a half percent. Load fund families tend to have higher expense ratios, some as high as 3%. You want to look for funds with expenses below a half percent, and nothing higher than 1%.

There are some great load funds, no question, and some bad no load funds, and you’d be better off paying commissions in a great load fund than not paying commissions in a lousy no load fund. But there are tons of great no load funds out there. The trick is finding them. You can take the time to learn about funds yourself, or you can hire a financial adviser, one that charges a fee for services, usually charged as a percentage of your total portfolio, 1% or less per year. Yes, that will add up to a lot of money over 25 years, but a good adviser will make a lot more money for you than you will if you don’t know what you’re doing. Avoid any adviser that is paid by commission. Not only does less of your money go to work for you, but once the commission is paid, the adviser doesn’t have to care about how your money is doing to keep getting paid, like the fee-based adviser, who only makes money if you do. If you tread water and make little, he’ll still get is 1% or so, but you’re not going to let that happen, right? You’d fire the guy and look for someone better, right? Mutual funds are not buy and forget investments. A good fee adviser will stay in touch with you regularly to keep your investments updated. Nobody’s perfect and even the best advisers make bad picks, but the best ones recognize their mistakes quickly, admit them to you, and replace those bad funds with better ones.

I’m not saying that there are not any commission brokers that will look out for you, but the fact remains that the commission broker only keeps getting paid if they keep getting you to invest. The commission brokers don’t sell no load funds, and the ones they do are from the company they work for (American Funds, Merrill Lynch, etc) or only a few fund families. So, in effect, they are doing what’s best for the companies they represent, by selling only those funds, to the exclusion of the often better competition. That is not doing the best job in representing you.

If you’re going to take the risk of the market, you owe it to yourself to look for the best funds possible. No one fund family has all of the best funds.

Tim Said on March 29th, 2010 at 6:33 pm:

The American Funds family does have some good funds but, to contradict curtisports2, they don’t have any mid-cap offerings and their small-cap offering is global in nature and not distinctly domestic or international. The problem with this is that it isn’t possible to have an asset allocation model with American Funds. Owning funds that cover the entire spectrum of the economy is a prudent way to manage risk and volatility within a portfolio as well as ensure that whatever sector of the economy does particularly well, you’re participating in the profits.

I’m a Financial Planner by profession and my advice is, especially when you’re just starting out with modest amounts, is to find a good Asset Allocation fund that grows better than most in rising markets, and drops less than most in declining markets. You can find a more disciplined and better performing approach, you just have to look further than just American Funds.

muncie birder Said on March 29th, 2010 at 7:13 pm:

I am partially in agreement with what the 1st responder stated about fund load at American Funds. But in the case of American Funds that load is counter balanced by their very good track record and their very low expense ratios, much lower than many no load funds. So lets get down to brass tacks. What are some good ones? The only way we can judge is based on past performance and based on risk. Future performance may not equal past performance so there is some risk that the criteria may be invalid. The same applies to risk.

You do want to have a diversified portfolio. One option to consider is the Target Date 2035 retirement account. The coposition of that account will change as you approach retirement. It consists of a collection now of 16 different funds mostly growth funds 40% and growth and income funds 45%. As you approach retirement the composition will change toward equity income and bond funds so that it will approach more of a 50-50 mix.

The funds that I like in particular are the Income fund of America. It is a steady if not spectacular performer. Also the Capital Income Builder. The New World Fund is particularly doing well currently. This has considerable risk but the historical rewards have been excellent. The Capital World Growth and Income has somewhat less risk but is also an excellent performer.

It is my predilection that the majority of retirement money should be invested in funds like the Income fund and the Capital Income Builder, but that a portion of up to 30% should be invested funds like the Capital World Growth and New World Fund.

There is considerable speculation that the U S’s time in the sun is rapidly approaching twilight as the sun move east and that the smart money will also move with the sun. American Funds does not have much exposure if any to this trend currently. The New World Fund does have 6% of its assets invested in India but only 1.8% invested in China. Actually their largest reported holdings are in Brazil 7.5%

Common Sense Said on March 29th, 2010 at 7:18 pm:

The American Funds is one of the best Mutual Fund Companies in the world. A good asset allocation is best. Read a book like “Mutual Funds For Dummy’s” to learn about asset allocation.

I especially like the Growth Fund Of America, EuroPacific, Washington & the Income Fund. The key is putting together the right asset allocation. If you can’t do that… go to a company like Edward Jones (the largest seller of American Funds in the USA) to help you.

My general suggestion is no more than 25% in the income fund (for me 15% would be too much). 20-25% in the EuroPacific.

Having said that…. I don’t invest in expensive “load” mutual funds. For every $10,000 you invest in the American Funds, the cost will be $575 or more if you take class “B” shares (take class “A”… over the long run they’re the cheapest).

Vanguard S&P500 tracker fund. Guaranteed to do as well as the American economy and no risks.

jueyanz Said on March 29th, 2010 at 8:09 pm:

I agree with the target fund suggestion. You can buy a Vanguard or other company fund with the boring name of “2050 Fund” or whatever your target year is. The manager will adjust the asset mix to reflect your risk profile as you approach that age, and you won’t have to do a thing – you’re paying those management fees anyway, so might as well pay to take the onus off your shoulders.